Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>Quiddity's <strong>"Who is Ready"</strong> series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.</li>
<li>
<a href="https://www.smartkarma.com/entities/plus-alpha-consulting-co-ltd" target="_blank" data-smartkarma-citation="entities:33441:1" rel="noopener">Plus Alpha Consulting (4071 JP)</a> will be included in TOPIX at the end of August 2023 and so far the stock has performed negatively as expected (see <a href="https://www.smartkarma.com/insights/plus-alpha-consulting-4071-jp-30bn-offer-leads-to-5bn-topix-inclusion" target="_blank" rel="noopener">link</a>).</li>
<li>Our long-term TOPIX pre-event name <a href="https://www.smartkarma.com/entities/celsys-inc" target="_blank" data-smartkarma-citation="entities:20774:1" rel="noopener">CELSYS (3663 JP)</a> has seen its share price decline sharply in the last few weeks which raises some important questions.</li>
</ul>


Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.

Plus Alpha Consulting (4071 JP) will be included in TOPIX at the end of August 2023 and so far the stock has performed negatively as expected (see link).
Our long-term TOPIX pre-event name CELSYS (3663 JP) has seen its share price decline sharply in the last few weeks which raises some important questions.


TOPIX Inclusions: Who Is Ready (Aug 2023)

Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>The percentage of stockholdings by individuals will continue rising. Their tendency to buy-on-decline will continue to serve as a cushion in times of falling stocks as well as voting behavior.</li>
<li>Now that the BOJ's ETF purchases have subsided, an increase in trust bank stock holdings is not expected. A limited increase in pension assets is also expected.</li>
<li>The reduction in cross-shareholdings has reduced the shareholding ratio of corporations to 19.6%. Meanwhile, corporations repurchased total of 5,790.7 billion yen in FY2022, indicating that share repurchases have taken root.</li>
</ul>


The percentage of stockholdings by individuals will continue rising. Their tendency to buy-on-decline will continue to serve as a cushion in times of falling stocks as well as voting behavior.
Now that the BOJ's ETF purchases have subsided, an increase in trust bank stock holdings is not expected. A limited increase in pension assets is also expected.
The reduction in cross-shareholdings has reduced the shareholding ratio of corporations to 19.6%. Meanwhile, corporations repurchased total of 5,790.7 billion yen in FY2022, indicating that share repurchases have taken root.


Increasing Attention to the Role Played by Individuals in the Rising Trend of Stock Ownership

<ul>
<li>Domestic investment managers are expected to show a higher percentage in favor of shareholder proposals, but life insurances still face a high hurdle in voting in favor of shareholder proposals.</li>
<li>It is relatively easy to decide for or against a proposal based on quantitative criteria such as the level of ROE or whether there are zero female directors.</li>
<li>Few institutional investors adequately disclose the reasons for approval or disapproval of individual proposals. Disclosure of reasons for approval or disapproval is required for company proposals that are controversial.</li>
</ul>


Domestic investment managers are expected to show a higher percentage in favor of shareholder proposals, but life insurances still face a high hurdle in voting in favor of shareholder proposals.
It is relatively easy to decide for or against a proposal based on quantitative criteria such as the level of ROE or whether there are zero female directors.
Few institutional investors adequately disclose the reasons for approval or disapproval of individual proposals. Disclosure of reasons for approval or disapproval is required for company proposals that are controversial.


Rather More Proposals that Have to Be Considered for or Against on a Qualitative, Case-By-Case Basis

<ul>
<li>Employee motivation is reflected in the fact that employee salaries have barely increased in 10 years (employee engagement in Japan has been 5% for four consecutive years).</li>
<li>First, employee salaries must be increased. Even during deflation, the consumption tax has been raised twice in the past decade, and the national burden rate has also increased.</li>
<li>When introducing employee stock compensation plan, it will be necessary to make sure that the plan is not only designed to supplement employee pay, but also to increase employee engagement.</li>
</ul>


Employee motivation is reflected in the fact that employee salaries have barely increased in 10 years (employee engagement in Japan has been 5% for four consecutive years).
First, employee salaries must be increased. Even during deflation, the consumption tax has been raised twice in the past decade, and the national burden rate has also increased.
When introducing employee stock compensation plan, it will be necessary to make sure that the plan is not only designed to supplement employee pay, but also to increase employee engagement.


Employee Stock Compensation Plans Need to Be Designed to Increase Employee Engagement

<ul>
<li>Unless 10% male/female of lawmakers, is changed, the quota system cannot be expected to be introduced. It's not easy to replace male incumbents who have vested interests with female candidates.</li>
<li>Gender wage gap relies on the low number of female managers, but there's no sense of acceleration in the government's goal of achieving 30% of female managers by 2030.</li>
<li>The gender gap in higher education is affecting female managers and the gender wage gap. It’s important to solve this fundamental problem by providing equal higher educational opportunities through scholarships.</li>
</ul>


Unless 10% male/female of lawmakers, is changed, the quota system cannot be expected to be introduced. It's not easy to replace male incumbents who have vested interests with female candidates.
Gender wage gap relies on the low number of female managers, but there's no sense of acceleration in the government's goal of achieving 30% of female managers by 2030.
The gender gap in higher education is affecting female managers and the gender wage gap. It’s important to solve this fundamental problem by providing equal higher educational opportunities through scholarships.


Solving Gender Gap in Higher Education Is Key, as Political Leadership Can’t Be Count On

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

TOPIX Inclusions: Who Is Ready (Aug 2023)

I am Bullish on CELSYS at the current price level (JPY 672). The share price has to increase to slightly for the company to meet the Section...

Janaghan Jeyakumar, CFA

Increasing Attention to the Role Played by Individuals in the Rising Trend of Stock Ownership

I would like to discuss the overview of the document the "Results of the Survey of Stockholding Distribution in FY2022."

Metrical Inc

Rather More Proposals that Have to Be Considered for or Against on a Qualitative, Case-By-Case Basis

I would like to discuss the issues on the June 29th Nikkei article, "Shareholders' Meetings are the Starting Point for Dialogue to Enhance...

Metrical Inc

Employee Stock Compensation Plans Need to Be Designed to Increase Employee Engagement

I would like to discuss 2 articles, "Executive Compensation Increases 20% in 10 Years, Widening Gap with Employees," and "Employees Engagement in...

Metrical Inc

Solving Gender Gap in Higher Education Is Key, as Political Leadership Can’t Be Count On

I would like to discuss the issues on Japan's ranking in the Gender Gap Index released by the World Economic Forum on June 21.

Metrical Inc